The U.S. Securities and Exchange
Commission yesterday charged Elon Musk, CEO and Chairman of Silicon
Valley-based Tesla Inc., with securities fraud for a series of false and
misleading tweets about a potential transaction to take Tesla private.

On August 7, 2018, Musk tweeted to his 22
million Twitter followers that he could take Tesla private at $420 per share (a
substantial premium to its trading price at the time), that funding for the
transaction had been secured, and that the only remaining uncertainty was a
shareholder vote.

The SEC’s complaint alleges that, in
truth, Musk had not discussed specific deal terms with any potential financing
partners, and he allegedly knew that the potential transaction was uncertain
and subject to numerous contingencies. According to the SEC’s complaint, Musk’s
tweets caused Tesla’s stock price to jump by over six percent on August 7, and
led to significant market disruption.

“Corporate officers hold positions of
trust in our markets and have important responsibilities to shareholders,” said Steven Peikin, Co-Director of the
SEC’s Enforcement Division. “An officer’s celebrity status or
reputation as a technological innovator does not give license to take those
responsibilities lightly.”

“Taking care to provide truthful and
accurate information is among a CEO’s most critical obligations,” added
Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “That
standard applies with equal force when the communications are made via social
media or another non-traditional form.”

The SEC’s complaint, filed in federal
district court in the Southern District of New York, alleges that Musk violated
antifraud provisions of the federal securities laws, and seeks a permanent
injunction, disgorgement, civil penalties, and a bar prohibiting Musk from
serving as an officer or director of a public company.

The SEC’s investigation, which is
continuing, was conducted by Walker Newell, and Brent Smyth and supervised by
Steven Buchholz, Erin Schneider, and Jina Choi in the San Francisco Regional
Office. The litigation will be led by Cheryl Crumpton and Barrett Atwood.